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California the over-regulator? Not for addiction treatment

Orange County Register (CA)

June 23--When it comes to drug and alcohol rehab centers, California channels its inner Texas: few burdens on business and as free-market as possible.

That stands in sharp contrast to New York, Massachusetts and a dozen other states, where would-be rehab operators must prove there's a local demand for their services and obtain a "certificate of need" before snipping opening-day ribbons and scaling those legendary 12 steps.

The lack of such a system is a key reason why Southern California is known as Rehab Riviera, with far more centers than the region's population could possibly support, critics say.

These CONs, as they're called, may sound wonky -- but they've been part of the American health care landscape for decades and aim to protect businesses as well as consumers.

"The basic assumption underlying CON regulation is that excess capacity stemming from overbuilding of health care facilities results in health care price inflation," said a review by National Conference of State Legislatures in 2016. "Price inflation can occur when a hospital cannot fill its beds and fixed costs must be met through higher charges for the beds that are used....

"Mandatory regulation through health planning agencies determined the most urgent health care needs, contributed to solutions for these needs and attempted to manage the fluctuations in prices often found in a competitive market. The intent was that new or improved facilities or equipment would be approved based primarily on a community's genuine need. Once need was established, the applicant organization was granted permission to begin a project."

As residents from Lake Arrowhead to Costa Mesa, Murrieta to Malibu and Palm Springs to San Clemente know all-too-well, that's not how it works in California. These cities have some of the densest concentrations of drug and alcohol treatment centers in the nation -- far more than their local populations could ever require, residents say -- and the influx of outsiders gravely impacts their communities, they say.

Malibu has 47 licensed centers, the same number as the entire state of Rhode Island. Costa Mesa has 102 licensed centers, more than the states of Mississippi, Nevada, Alaska, Arkansas and Montana, according to state and federal data.

How did this hyper-concentration happen? Some trace it back to the 1980s, when California dumped CON requirements in a Reagan-inspired flush of deregulation. Today, California stands with Texas, North and South Dakota, Kansas, Idaho, Wyoming, Utah and New Hampshire -- the "Live Free or Die" state -- in unleashing the health care industry to market forces and allowing would-be operators to largely open what they want, where they want, regardless of local need.

Some argue it hasn't worked out well in California.

"It's so bad right now I get three to four calls a month from people who tell me they want to open up a 'detox center' and can I help them," said Mick Meagher, an Escondido-based attorney and consultant to the addiction treatment industry.

"Most are target-marketing young adults from out-of-state who are relying heavily on mommy and daddy's PPO insurance. But there's no showing of need. Show me that Newport Beach and San Clemente need 44 more treatment centers based on their catchment area.

"Telling me (that) there are 80,000 guys in Florida or Texas or Kansas who need treatment should not, in my mind, be satisfactory," Meagher added. "They may need it, but not here."

The Southern California News Group recently investigated the addiction industry and found it peppered with financial abuses that bleed untold millions from public and private pockets, can upend neighborhoods, and often fails to set addicts on a path to sobriety. Lax government regulation and widely-divergent treatment approaches have meant poor care for many. The revolving door between detox centers, treatment facilities, sober living homes and, often, the streets generates huge money for operators who know how to game the system. And even obvious fixes can be hard to make.

California's regulation of substance abuse treatment been attacked for myriad failings over the years. But the state's move to drop the CON requirement might be macro event that allowed the rest to happen.

Keeping the lid on

New York was the first state to adopt a CON law -- for nursing homes -- back in 1964, according to a review by the California Research Bureau. It's no easy feat to get such permission in New York, and that keeps the lid on growth, which is either agonizing or excellent, depending on one's point-of-view.

New York's system is typical of CON states: First, would-be facilities must submit an application, which goes through a "public need review" to ensure that the services it plans to provide are in demand from the local community. Then there's a financial feasibility review; a "character, competence and programmatic review;" an architectural and engineering review; and finally, a legal review.

Instructions run dozens of pages long and require applicants to address an exhaustive list of questions in what may be the healthcare equivalent of California's Environmental Impact Report. (EIRs, widely detested in the construction industry, require many builders to complete exhaustive and expensive examinations of a project's effects before they're allowed to displace a shovelful of dirt.)

Staffers at the New York State Department of Health make a recommendation on whether the facility can open, and the final decision is made by the New York State Public Health and Planning Council in a public session.

Today, New York treats more patients than California, even though it has about half as many licensed treatment facilities, according to state and federal data.

Massachusetts is another state with a reputation as a watchful regulator. It revamped its system -- referred to as "Determination of Need," or DON -- in March.

Among many other things, would-be providers must complete a "patient panel" with supporting data to demonstrate the need for the project, including disease burden, behavioral risk factors, health disparities and other objective measures. They must show that their projects will result in improved health care outcomes in Massachusetts, and provide evidence that the projects "will compete on the basis of price, total medical expenses, provider costs, and other recognized measures of health care spending."

In 2015, Massachusetts had 321 substance abuse treatment centers and 45,438 clients in treatment, according to SAMHSA.

States with CON or CON-like laws governing substance abuse treatment centers include Alabama, Connecticut, Hawaii, Maine, Mississippi, Montana, North Carolina, Oklahoma, Rhode Island, South Carolina and Tennessee, as well as Washington D.C., said Ashley A. Noble, a policy specialist with the nonpartisan National Conference of State Legislatures.

"CON is usually implemented to control costs, supply, or both," Noble said.

"The evidence is not consistent on whether it controls cost," she added. "But it appears to work well if you're trying to control supply."

How the lid came off in California

The CON concept has a long and tortured history in California.

The state's first CON program was enacted in 1969 and was required for the placement of acute general hospitals, skilled nursing facilities, acute psychiatric hospitals, intermediate care facilities, and for the conversion of existing hospital beds to a different type of service.

"For more than 30 years, state and local planning agencies were involved in analyzing and approving the construction and expansion of health care facilities and services, based on a determination of community need," said a 2006 State Research Bureau report. "The goals were to ensure access to quality health care and to contain costs by restricting excess hospital capacity."

From 1970 to 1973, about 14,000 additional beds for California health facilities were approved for a CON, and nearly 15,000 were denied. If facilities opened without a CON, Medi-Cal payments could be withheld.

But that rarely happened. The Research Bureau said California's CON program in that era suffered from inadequate staffing, a lack of data, exceptions that made it difficult to administer, and sanctions for noncompliance that were hardly ever used.

Several studies challenged the basic assumption inherent in CON laws; that restricting the supply of health care facilities reduces health care costs. In fact, they contended, it increased costs by restricting competition.

But CON supporters pointed to competing studies that found regulation exerts a downward pressure on spending and health care costs, compensating for imperfections in the market and promoting access to quality care, especially in rural areas.

Debate became largely moot after President Reagan's Omnibus Budget Reconciliation Act of 1981, which substantially reduced federal funding for the planning of health care facilities. Reagan's budget requests proposed repealing CON nationwide, as a way to "reduce the regulatory burden on the private sector." Soon a number of states--including California -- ditched the requirements," the Research Bureau said.

What now?

The Federal Trade Commission and Department of Justice said that "CON programs are not successful in containing health care costs and pose serious anti-competitive risks that outweigh their purported economic benefit" in a 2004 review.

A review during the same time period for several huge employers -- car makers DaimlerChrysler Corporation, Ford Motor Company and General Motors -- found that CON states had lower health care costs than non-CON states.

As a new anti-regulation mood sweeps the nation, more states are reconsidering CONs. Florida -- a state that matches California in the scope of fraud within its addiction treatment sector -- may abandon CONs as well. The move wouldn't have much impact on rehabs, though: addiction treatment facilities aren't subject to CON requirements in Florida.

Some wonder if California should reconsider a 21st century version of CON, requiring proof of local need before facilities can open.

"Of course we should have licensed treatment centers in proportion to the local need -- that's eminently logical," said Laurie Girand, a steering committee member with Advocates for Responsible Treatment in San Juan Capistrano.

Her city has 35,000 citizens and 29 state-licensed facilities -- nearly as many as Washington, D.C. Fourteen of them are detox houses, where addicts might stay for days or weeks, and 15 are treatment centers, where they might get therapy for months.

"The local population does not need that many treatment centers," Girand said.

For one miserable year, Geoff Szabo lived next to a rehab in Murrieta.

"This has legs for limiting the number of facilities," Szabo said of CONs. "Part of the problem we have in Murrieta with these 15 or so rehabs is that the vast majority of people are flown in from out of state. There's something to be said for getting the addict out of the environment -- but I don't know that they have to go a few thousand miles. A few cities away might be fine."

Constance Scharff is director of addiction research with Cliffside Malibu, a luxury rehab frequented by celebrities. She's not so sure CON is the answer.

"I think it's unfair to let homeowners dictate and decide where other people can get their health care needs met," said Scharff. "People say 'we don't want these facilities in our neighborhood,' so often, even if there's a need, you wouldn't get a certificate."

Predicating substance abuse treatment licensing on local demand ignores a basic reality, she said: If one is going to endure the extreme physical discomfort of trying to get clean, one would rather do it by the seashore.

"If you're given the choice between Huntington Beach and Hesperia, what are you going to chose?" Scharff asked. "Clearly, as a society, we have to do something. The status quo is not acceptable.

"The treatment centers and the community really need to be on the same side," she said. "Every community has this problem of addiction. It's your children. Your parents. Your husbands and wives. We have to come to a consensus that says, 'what are we going to do to help these people?'"

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